How the Appraisal Works for HomeStyle Renovation Loans
The appraisal for a HomeStyle Renovation mortgage works differently than a standard home purchase or refinance. The appraiser must estimate what your property will be worth after all the renovation work is complete. This "as completed" value determines how much you can borrow.
Say you're buying a house for $300,000 that needs $75,000 in renovations. The appraiser might determine the "as completed" value will be $425,000. Your loan amount is based on this future value, not the current condition of the property.
The appraiser uses your detailed renovation plans and specifications to make this determination. They need to understand exactly what work will be done, what materials will be used, and how the improvements will affect the property's market value.
Contractor Requirements and Qualifications
You must use a licensed contractor for all renovation work, unless your state or local jurisdiction doesn't require licensing for the specific type of work being performed. The contractor licensing requirement protects both you and the lender from substandard work.
Your lender will evaluate whether your chosen contractor is qualified. They'll look at the contractor's experience, credentials, financial stability, and ability to complete the work on time. The contractor must also agree to indemnify you for any property damage caused by their employees or subcontractors.
Your lender may require the contractor to complete Form 1202, the Contractor Profile Report. This form provides detailed information about the contractor's qualifications, insurance coverage, and financial condition.
One important rule: your lender cannot choose your contractor or refer you to a specific contractor. You select the contractor, subject to the lender's approval of their qualifications.
Do-It-Yourself Option
HomeStyle Renovation loans do offer a "Do It Yourself" option for borrowers who want to complete some or all of the renovation work themselves. This option has specific requirements and limitations that are detailed in guideline B5-3.2-02: HomeStyle Renovation Mortgages: Loan and Borrower Eligibility.
Even with the DIY option, you still need professional plans and specifications prepared by a licensed contractor, renovation consultant, or architect. The lender needs detailed documentation of the work to be performed.
Plans and Specifications Requirements
Your renovation plans and specifications must be prepared by a registered, licensed, or certified professional. This could be a general contractor, renovation consultant, or architect. The plans serve multiple critical purposes in the loan process.
The plans must describe all work to be done and include a timeline showing when various stages will start and finish. Your lender uses these plans to evaluate the quantity, quality, and cost of the renovation work. The appraiser also relies on these plans to determine the "as completed" value.
Think of the plans as the blueprint for your entire loan. They document exactly what you're financing and provide the basis for all loan calculations and approvals.
Making Changes to Your Renovation Plans
If you want to change your original renovation plans after loan approval, you must submit a formal change order request. Fannie Mae requires Form 1200, the HomeStyle Change Order Request, or a substantially similar document.
The change order must include a detailed description of the changes, the cost impact, and updated completion dates. Your lender must approve any changes before you proceed with the modified work.
This requirement exists because changes can affect the loan amount, the property's final value, and the loan's risk profile. Even seemingly minor changes need formal approval to maintain the loan's eligibility.
When Things Go Wrong During Renovation
Sometimes unforeseen circumstances occur during renovation work. Natural disasters, contractor bankruptcy, divorce, or death can all disrupt renovation plans. When this happens, your lender must take specific steps to protect both you and Fannie Mae.
The lender must evaluate how material the change is to the renovation project. If the changes are significant, they must obtain an updated appraisal to determine if the "as completed" value has changed.
Any change in the property's appraised value must be reported to Fannie Mae through their Loan Quality Connect system. Depending on the changes, the lender might be responsible for additional mortgage insurance premiums or loan-level price adjustments.
In severe cases where the new loan-to-value ratio exceeds Fannie Mae's limits, or the changes result in a property that doesn't meet Fannie Mae's standards, the lender may be required to repurchase the loan from Fannie Mae.
Documents You'll Need to Prepare
For the contractor evaluation, gather your contractor's license information, insurance certificates, and references from recent projects. If your lender requires it, have your contractor complete Form 1202, the Contractor Profile Report.
Your renovation plans and specifications must be professionally prepared and include detailed descriptions of all work, materials to be used, and project timelines. These documents become part of your loan file.
Keep copies of any change orders throughout the renovation process. If you need to modify your plans, use Form 1200 or a similar document that provides the required level of detail about the changes.
Why These Rules Exist
Fannie Mae's collateral requirements for HomeStyle Renovation loans exist because these loans carry more risk than standard mortgages. The lender is financing work that hasn't been completed yet, based on an appraised value that assumes the work will be done properly.
The contractor licensing requirements help ensure the work will be completed to professional standards. The detailed plans and specifications provide a clear scope of work that can be properly valued and monitored.
The change order process prevents scope creep that could affect the loan's risk profile. The requirements for handling unforeseen circumstances protect both borrowers and lenders when things don't go according to plan.
Common Pitfalls to Avoid
Don't start any renovation work before your loan closes and funds are available. Beginning work early can create complications with the appraisal and loan approval process.
Make sure your contractor understands they'll be working with a renovation loan that has specific requirements and timelines. Not all contractors are familiar with HomeStyle Renovation loan procedures.
Avoid making changes to your renovation plans without formal approval. Even small changes can create problems if they're not properly documented and approved through the change order process.
Don't assume your lender will automatically approve plan changes. Significant modifications might require a new appraisal or could even make your loan ineligible for Fannie Mae purchase.
References
For the official guidelines, see B5-3.2-03: HomeStyle Renovation Mortgages: Collateral Considerations in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
No spam · Unsubscribe anytime
Original Fannie Mae Guideline Text
B5-3.2-03, HomeStyle Renovation Mortgages: Collateral Considerations (12/10/2025)
Plans and Specifications
Unplanned Changes in Scope or Incomplete Work
Appraisal Requirements
The appraisal report for a HomeStyle Renovation mortgage must provide an “as completed” appraised value that estimates the value of the property after completion of the renovation work. (See B5-3.2-02, HomeStyle Renovation Mortgages: Loan and Borrower Eligibility, for requirements pertaining to the cost of the renovations as a percentage of the appraised value. See also Unplanned Changes in Scope or Incomplete Work
Contractor Requirements
All renovation work must be performed by a licensed contractor or subcontractor, unless contractor licensing is not applicable under state or local law for the specific trade or type of renovations being performed.
The borrower must choose the contractor to perform the needed renovation, subject to the lender’s determination that the contractor is
qualified and experienced,
has all appropriate credentials required by the state,
is financially able to perform the duties necessary to complete the renovation work in a timely manner, and
agrees to indemnify the borrower for all property losses or damages caused by its employees or subcontractors
The lender may not choose the contractor or refer the borrower to any one specific contractor. However, the lender may require the borrower to obtain a completed Contractor Profile Report (Form 1202) from the contractor that is selected to ensure that the lender has sufficient information available to make a determination about the contractor’s qualifications.
The borrower may also complete repairs under the “Do It Yourself” option described in B5-3.2-02, HomeStyle Renovation Mortgages: Loan and Borrower Eligibility.
Plans and Specifications
The plans and specifications must be prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect. The plans and specifications should fully describe all of the work to be done and provide an indication of when various jobs or stages of completion will be scheduled (including both the start and completion dates).
The lender must use the plans and specifications to document and evaluate the quantity, quality, and cost of the renovation work that is to be done and to determine the amount of financing that will be available. These plans and specifications also must be used by the appraiser in the development of their opinion of the “as completed” value of the property.
Before approving any change a borrower wants to make to the original plans and specifications, the lender must require the borrower to submit a HomeStyle Change Order Request (Form 1200) or a substantially similar document, that provides a detailed description of
the changes,
the cost of the changes, and
the estimated completion date(s).
Unplanned Changes in Scope or Incomplete Work
Lenders must work with borrowers and contractors to ensure renovations are completed as planned, within an acceptable timeframe. If unforeseen circumstances occur during the renovation work, such as property damage from a natural or manmade disaster, or a life altering event such as death or divorce, the lender must take additional steps to evaluate the materiality of the change to any renovations in progress.
The lender must obtain an updated appraisal to determine whether the changes will impact the “as completed” value of the property, and must self-report any change in value by entering it into Loan Quality Connect. In some cases, the lender may be responsible for additional mortgage insurance or LLPAs. When the new LTV exceeds Fannie Mae’s eligibility criteria, or the changes result in a home that does not meet Fannie Mae’s general property standards and appraisal requirements, the lender may be required to repurchase the loan.
